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Let them have “Good Institutions”

The people in poor countries have the same aspirations as those in rich countries — to have the same chances and opportunities, good health care, clean running water in their homes and high-quality schools for their children. The problem is that their aspirations are blocked today — as the aspirations of black people were in apartheid South Africa — by extractive institutions. The poor don’t pull themselves out of poverty, because the basic ability to do so is denied them. You could see this in the protests behind the Arab Spring: those in Cairo’s Tahrir Square spoke in one voice about the corruption of the government, its inability to deliver public services and the lack of equality of opportunity. Poverty in Egypt cannot be eradicated with a bit more aid. As the protestors recognised, the economic impediments they faced stemmed from the way political power was exercised and monopolised by a narrow elite.

…… Making institutions more inclusive is about changing the politics of a society to empower the poor — the empowerment of those disenfranchised, excluded and often repressed by those monopolising power. Aid can help. But it needs to be used in such a way as to help civil society mobilise collectively, find a voice and get involved with decision-making. It needs to help manufacture inclusion.

I am a firm believer in the fact that “institutions rule” and are “the fundamental cause” of long-run economic growth and political stability. That said, I think this latest addition to the “Aid Debate” also detracts from the real issues regarding the efficacy of aid. It also runs the risk of creating the impression that the promotion of good institutions is a substitute for all forms of aid, or worse, that aid has led to the persistence of bad institutions and endemic poverty in poor countries.

How would the Central African Republic look today if it hadn’t received any kind of foreign aid over the years? I, for one, don’t think that it would be a bastion of political stability and stellar economic performance.

Strong and stable institutions are absolutely essential for the achievement of political and economic stability and general improvement of human welfare. And we should definitely preach this gospel for all to hear. But they also take forever to emerge, and depend on all sorts of localized variables that an international institution builder would most certainly miss (also, see here). And in the meantime, we still have to deal with the challenge of making the lives of the poor better (and within their lifetimes, approx. 60 years). Under these conditions, single panaceas (aid-driven or not) will obviously not work, especially if they come in as vague a package as “good and inclusive institutions.”

5 thoughts on “Let them have “Good Institutions””

Ken – I apologize if you have already written on this, but I am curious how you would respond to Dambisa Moyo’s argument that aid is not only not helping, but is actually a root cause of poor governance/economic underdevelopment/weak institutions.

I think Moyo made a great point – that we cannot rely on aid to lift Africa out of poverty; and that aid cuts that critical tie between the ruled and the rulers. Her solution was then to promote other channels of revenue generation for African governments – broader and deeper tax collection, better management of resources like agriculture and minerals.

The current track of discourse however, emphasizes good governance and institutions. These are amorphous targets that cannot be easily translated into concrete policy outcomes. The distinction is small but important. Good governance is what ultimately sets countries on the path to prosperity. But the road to good governance is not rosy and is full of too many unknowns. So instead of trying to thread that needle, I think development experts and practitioners ought to focus instead on job creation and increasing productivity in sectors like manufacturing and agriculture.

This is why I love most of the public health interventions. They are laying the groundwork for a healthier more robust African workforce.

It is time development economists focused on the applied stuff of mass job creation and actual productivity gains instead of acting as if political reforms are the panacea to underdevelopment. My understanding from reading both AR Economic Origins and Moore’s Social Origins is that economic and political institutions co-evolve. Placing one in front of the other necessarily creates problems.

What do A&R think a big chunk of foreign aid actually does? A lot is governance aid, anti-corruption aid, etc. And building schools and developing civil society are pretty big components of the aid agenda. Gee, I guess we should have just made those countries democracies instead–why didn’t we think of that?

I think one should not see A/R’s insistence on the primacy of institutions independently from the history of overblown assertions pertaining to foreign aid and its alleged impact on economic development. As they say in their answer to the very negative review Bill Gates gave to “Why Nations Fail”:

“But even sadder is the fact that we don’t even argue against foreign aid. What we argue in the book is that aid — the little of it that reaches its target — does a lot of good for poor people. But it is not the solution to the real problems of development. Instead of endlessly asserting empirically untenable positions, we all need to move on and find more constructive ways to engage with poor countries. Foreign aid should certainly be part — but not all — of this engagement.”

What I think they want is to separate the aid debate altogether from – according to their reasoning – completely different debate about economic development. And I guess the fact that very popular figures like Bill Gates and Jeff Sachs conflate – again, according to their reasoning – the two causes them to be blunt in this regard. But maybe I am reading Easterly into A/R.

Thanks for the discussion of Dambisa Moyo, unfortunately I know almost nothing about her work. Do you have any recommendation to get started?

A bit OT perhaps, here is a recent Paper in Climatic Change studying the (ambiguous) outcomes of initiatives to enhance productivity and resilience of the agricultural sectors of Malawi and Kenya, “Enabling adaptation? Lessons from the new ‘Green Revolution’ in Malawi and Kenya”. You are probably informed about that, but still, perhaps it is of interest:

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